No penalty could be imposed when the amount of Service tax has been paid along with interest before issuance of Show Cause Notice

No penalty could be imposed when the amount of Service tax has been paid along with interest before issuance of Show Cause Notice

We are sharing with you an important judgment of Hon’ble CESTAT, New Delhi, in the case ofCCE, Panchkula Vs. M/s. Krishna Cylinders [2015 (1) TMI 1197 - CESTAT NEW DELHI] on the following issue:

Issue:
Whether the penalty can be imposed when the amount of service tax has been paid along with interest before issuance of Show Cause Notice?

Facts and background:

During the course of audit it was revealed that Krishna Cylinders (“the Assessee”) has not paid Service tax during the period from April 1, 2006 to March 31, 2007 on outward Goods Transportation services. However, on being pointed out by the audit team, the Assessee paid the entire amount of Service tax along with applicable interest. Thereafter, a Show Cause Notice (“SCN”) was issued to the Assessee to appropriate the amount already paid by the Assessee and for imposition of penalties under Sections 76, 77 and 78 of the Finance Act, 1994 (“the Finance Act”).

Thereafter, in the Adjudication proceedings, the amount already paid by the Assessee was appropriated against the demand of Service tax and interest and various penalties underSections 76, 77 and 78 of the Finance Act were confirmed.

On appeal being filed to the Ld. Commissioner (Appeals), the penalties under Sections 76, 77and 78 of the Finance Act were set aside by invoking Section 80 of the Finance Act. Being aggrieved, the Revenue preferred an appeal before the Hon’ble CESTAT, Delhi.

The Revenue submitted that in the present case, the demand has been confirmed and admitted by the Assessee for the extended period of limitation. Therefore, the Assessee cannot escape the penalties. It was further submitted when extended period of limitation has been invoked and liability has been admitted by the Assessee, benefit of Section 80 of theFinance Act cannot be granted. Furthermore, relying upon the decision in the case of Machino Montel (I) Ltd. [2006 (7) TMI 23 - HIGH COURT OF PUNIAB & HARYANA (CHANDIGARH)],it was submitted that mere deposition of the duty demand before issuance of SCN cannot give the benefit to the Assessee for non-imposition of penalty.

Held:
The Hon’ble CESTAT, Delhi after discussing Section 73(3) of the Finance Act held that as per the provisions of Section 73(3) of the Finance Act, the SCN was not required to be issued when Service tax along with interest has been paid by the Assessee before issuance of SCN. Further, in SCN there were no specific allegations of non-payment by way of fraud, collusion, willful misstatement or suppression of material facts.

Accordingly, it was held that although the SCN was issued to the Assessee which was not required to be issued as per Section 73(3) of the Finance Act, no penalty could be imposed.